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What is an Asset Protection Trust?

An asset protection trust can be drafted in many different ways for different situations. Generally, a trust can have asset protection qualities when it refers to certain statutory protections, contains properly drafted spendthrift provisions, and/or contains proper designations of trustees for discretionary distributions.

Will I Lose Control of My Assets?

We design trusts so that you maintain as much control as you want over your assets. For example, if you want to use the income from the property that you want to place in trust, we can design a trust to hold the property as principal that is asset protected but still allow you to have income from the trust property. There are many ways to design a trust to suit your particular needs.

Are All Asset Protection Trusts Irrevocable?

Revocable living trusts typically become irrevocable upon the death of the persons creating the trust. A revocable living trust may be used to create asset protection for the beneficiaries. Irrevocable living trusts protect the maker of the trust, and may or may not provide asset protection for the beneficiaries of the trust.

What are All of the Benefits of Asset Protection Planning?

Asset protection planning is like insurance against future losses – but it covers things that insurance does not cover. Like your future ex-son-in-law who wants to take half of the family farm when he divorces your daughter. Like your son having a drug habit at the time he inherits your estate. Like being involved in a lawsuit that isn’t covered by your regular insurance. Like long term care expenses for a nursing home that can cost $100,000 per year if you have not planned to be able to qualify for Medicaid. These are real-world issues that you can address with asset protection planning.

Why Can’t I Just Transfer My Assets to My Spouse or My Children?

If you transfer your assets, you lose all control over them. If you use a trust, you can change anything in a revocable living trust, and you can maintain a lot of control even with an irrevocable trust. For instance, it can be designed so you can change beneficiaries, change trustees, and even change the nature of the trust holdings to make more or less income. Another reason not to simply transfer property is timing. The timing of your transfer of property may affect whether you will be able to qualify for Medicaid. Transfers within 5 years of the date of application for Medicaid are considered to be transfers made for the purpose of qualifying for Medicaid, so there will be a penalty period during which a nursing home must be paid out-of-pocket before Medicaid payments will begin.

Can Asset Protection Be Effective if I am Currently Engaged In or Threatened With Litigation?

It will depend on the specifics of that litigation and the transfer you want to accomplish. Under the Texas Uniform Fraudulent Transfer Act (TUFTA), an asset transferred with “actual intent to hinder, delay, or defraud” a creditor may be reclaimed for the benefit of the transferor’s creditors unless the transferee “took [the asset] in good faith and for a reasonably equivalent value.” Even without proof of actual intent, an asset transfer may be avoided if the transferor was financially vulnerable at the time of the transaction and the “value” exchanged was not reasonably equivalent. Generally, you can still make transfers as long as it is for the full value, but transfers to family members, other “insiders,” or other related entities will be more suspect.

How Vulnerable is My Home to Lawsuits?

Texas has strong protection against creditors for your homestead. Texas law allows a homestead to be placed in a trust and still keep its homestead protection if certain statutory rules are followed. However, many people do not know that healthcare providers may place a lien on a homestead. Also, if a person received Medicaid benefits, then the homestead in the person’s estate after death may be subject to recovery from the state for the cost of that care.

How Unsafe is It for Spouses to Own Their Investments in Their Individual Names?

It is not unsafe to hold investments in your individual name, it just means that those investments are subject to any of your creditors. Depending on the financial situation of the spouses, we may or may not advise the clients to hold those assets differently. We definitely advise our clients to set up a trust as the beneficiary of those accounts, particularly if they have young children who may become the beneficiaries. If both mom and dad are in the same car accident, the children will not have access to those funds until either a guardianship is set up, or the children turn 18. Further, a trust provides protection for the beneficiary regardless of age, so there is not an outright distribution of funds to a person at an inopportune time, such as when there is an ex-spouse with a claim for child support or alimony, an outstanding judgment, a need for governmental benefits, or the need to declare bankruptcy.

For more information on Asset Protection Trust In Texas, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (512) 288-3200 today.

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